HONOLULU, Hawaii – The state’s financial house “stands on solid ground,” resulting in a surplus, Gov. Neil Abercrombie proclaimed during his fourth State of the State address on Wednesday.

“For three years, we have strategically managed our resources, endured shared sacrifices, made fiscally prudent decisions, and have seen our economy improve,” Abercrombie said, pointing to a general fund balance of $844 million in fiscal year 2013, a “turnaround” of more than $1 billion since 2010.

“We are stabilizing future costs and expenditures. We are concluding collective bargaining agreements, several of which are for multiple years. We have taken affirmative action in addressing our state’s unfunded liabilities – for medical benefits for retirees – and pensions, salvaging both from fiscal disaster.”

Minority Republican leaders in both the House and Senate immediately rebutted the governor’s claims that the state has turned around economically, stands on solid financial ground and that a surplus truly exists.

“When taking credit for turning the economic corner, talked about improved economy, I would challenge the governor or anyone to walk down any street in Hawaii and ask the first 10 people they see if they are better off this year, or last year, compared with four years ago,” Senate Minority Leader Sam Slom said.

“Everyone with few exceptions is struggling in this state, and the economy has not turned the corner, and it has gotten worse and the optimism level is at an all time low level. That’s why the governor is not getting high marks for performance from real people.”

House Minority Leader Aaron Ling Johanson said the claim of a surplus is a “misnomer,” pointing to the state’s unfunded liability. He noted Hawaii consistently is ranked among the worst for its unfunded liability debt, including the Employee Retirement System and the Hawaii Employer-Union Health Benefits Trust Fund.

Hawaii has $23.49 billion of debt, including bonds, unfunded pensions and retirement health and other debt, less debt related to capital assets, according to figures provided by Donna Rook, president of StateDataLab.org. She confirmed Hawaii does have $4.6 billion of assets available to pay that debt, but needs $18.91 billion to fully pay the balance.

Kalbert Young, director of state Department of Budget and Finance, said the state is working to pay down the debt beginning this fiscal year, including the other post-employment benefits (OPEB) unfunded liability, with a payment of $100 million. In fiscal year 2015, there will be another payment of $117.4 million.

While the administration and the Legislature tried to get the underfunded amounts under control during 2013, Slom said it will take 30 years to adequately fund these entities. He said he is concerned that future governors and lawmakers will not stand behind the plan.

Hawaii has among the highest overall taxes in the nation and the highest cost of living. Both Slom and Johanson said if there is a surplus, the public is overtaxed, and taxes should be reduced across the board.

“All too often in this state we hear the executive branch and the Legislature concede the high cost of living in Hawaii is always going to be there, but we can lower the cost of living and make our dollars go further by lowering taxes,” Johanson said.

Abercrombie said his proposed supplemental budget does not rely on tax or fee increases, and he is recommending two ways to lower taxes for Hawaii’s senior citizens.

“I propose to exempt any presently taxed income from all sources for taxpayers age 65 and older with an adjusted gross income (AGI) of $25,000, AGI of $35,000 for heads of households, or AGI of $45,000 for joint filing. This assures these seniors will not have their retirement income taxed. This will affect as many as 25,000 or more seniors throughout Hawaii,” Abercrombie said. “I propose to double the current refundable food (and) excise tax credit for taxpayers 65 years or older whose AGI is less than $50,000. This is a direct payment to the senior taxpayer. This will affect as many as 110,000 Hawaii seniors or more.”

The state passed a two-year budget during the 2013 Legislature, allocating about $14 billion over two-years for operations. The governor’s supplemental budget request this year increases the state operating budget with $231 million during FY 2014 and 2015, increases the capital improvement budget with $1.8 billion during this same time period, for a total of about $2 billion over two years.

“By directing more bond funds to long-term assets and using general funds to address immediate and short-term repair and maintenance, the state continues its more fiscally prudent management of capital improvement projects,” Young said. “Financial rating agencies recognize our efforts and have improved their outlook assessment from negative to ‘stable’ to ‘positive.’”

The governor said he also is building the state’s reserves to up to 10 percent of general fund revenue so the state can weather future economic downturns.

The Emergency and Budget Reserve Fund will receive $50 million in fiscal year 2014, and the Hurricane Reserve Trust Fund will have a transfer of $50 million in fiscal year 2014, which is in addition to the $55.5 million in general excise tax revenues transferred this fiscal year, Young said. Through separate legislation, the administration will also recommend transferring $50 million to each fund in FY2015.

“The estimated balance of Hawaii’s reserves after these transfers will be more than $372 million, or 5.6 percent of projected general fund revenues in fiscal year 2015 –already more than halfway to the 10 percent target,” Young said.

Senate President Donna Mercado Kim said she wants to ensure the Legislature sets aside some of the $844 million to replenish the state’s emergency fund, which legislators raided in previous years to balance the budget. She said she doesn’t want to allocate money to services and programs the state can’t sustain.

However, not everyone believes saving the surplus is a good idea, and in fact, the governor’s announcement has set off a money grab.

Public unions want pay raises. State departments are requesting money to cover shortfalls or hire additional staff, and nonprofits subsidized by the government are vying for the cash, Slom said.